(L.OBJ. 3, 4, 5) Accounting for uncollectible accounts using the allowance and direct write-off methods and reporting receivables on the balance sheet [20—30 min]
On May 31, 2011, Rosebud Floral Supply had a $140,000 debit balance in Accounts receivable and a $S600 credit balance in Allowance for uncollectible accounts. During June, Rosebud made
Requirements
1. Journalize all June entries using the allowance method. Uncollectible-account expense was estimated at 2% of credit sales. Show all June activity in Accounts receivable, Allowance for uncollectible accounts, and Uncollectible-account expense (post to these T-accounts).
2. Using the same facts, assume instead that Rosebud used the direct write-off method to account for uncollectible receivables. Journalize all June entries using the direct write-off method. Post to Accounts receivable and Uncollectible-account expense and show their balances at June 30, 2011.
3. What amount of uncollectible-account expense would Rosebud report on its June income statement under each of the two methods? Which amount better matches expense with revenue? Give your reason.
4. What amount of net accounts receivable would Rosebud report on its June 30, 2011, balance sheet under each of the two methods? Which amount is more realistic? Give your reason.
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